Warren Buffett on Saturday defended the size of Berkshire Hathaway’s $158 billion stake in Apple.
The investor hailed the iPhone maker’s economy, loyal fans, stock buybacks and promising outlook.
Buffett hailed Apple as a better company than any of Berkshire’s many subsidiaries.
Warren Buffett’s Apple bet has jumped nearly 40% this year to $158 billion, or 22% of Berkshire Hathaway’s total market capitalization of $720 billion.
The legendary Berkshire investor and CEO dismissed concerns that the bet is now out of proportion at his company’s annual shareholder meeting on Saturday.
He outlined five reasons why he’s more than happy with the size of the investment and isn’t worried about being too focused on a single stock. They ranged from Apple’s business model and brand power to its predictability and penchant for stock buybacks.
apple of his eye
Berkshire spent around $36 billion between 2016 and 2018 to amass a 5.4% stake in Apple. It cashed in around 9% of the position in 2020, bringing its cost base down to $31 billion. He’s only tweaked the stake since then, meaning he’s earned about five times his money on paper.
Buffett’s first defense of his stake in the iPhone maker — by far the largest position in his stock portfolio — was that it’s not that big if you look at Berkshire as a whole.
“Apple does not represent 35% of Berkshire’s portfolio,” he said. “Berkshire’s portfolio includes rail, energy, Garanimals, you name it, See’s Candy.”
In other words, Buffett sees Apple as one of Berkshire’s many business interests. These range from stakes in public companies like Coca-Cola and Kraft Heinz, to its wholly-owned subsidiaries like Geico, Duracell and the BNSF railroad.
The investor’s second response to claims that it is over-indexed in Apple stocks was to say that it is a superior company to each of Berkshire’s subsidiaries.
“It happens to be a better business than any we own,” he said. “Our railroad is a very good business. It’s not as good as Apple’s business.”
Buffett also pointed to another benefit of owning Apple stock: stock buybacks. The tech titan’s stock buybacks have boosted Berkshire’s stake from 5.4% at the end of 2018 to 5.8% today, without Buffett and his team having to spend a dime.
“The good thing about Apple is that we can go up,” he said.
The Berkshire chief noted that an additional part of Apple’s value is its appeal to customers. He gave a theoretical example of someone having to choose between parting with a second $35,000 car or their $1,500 iPhone.
“If they had to give up a second car or give up their iPhone, they would give up their second car,” he said.
Finally, Buffet pitted his confidence in Apple’s medium-term prospects against his deep uncertainty about the outlook for the US auto industry.
“I think I know where Apple will be in five or ten years,” he said. “I don’t know where automakers will be in five or ten years.”
Buffett has highlighted some of Apple’s other strengths in the past. For example, he praised CEO Tim Cook’s management skills and global knowledge, and pointed to the tremendous value and usefulness that Apple devices offer customers.
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